Goldman Sachs still sees Fed on hold despite Warsh's hawkish Jackson Hole tone
At a Glance
Goldman Sachs is maintaining a position that the Federal Reserve is unlikely to raise rates in September, countering market reactions to Kevin Warsh's hawkish remarks at Jackson Hole. Per the full note , they believe that unless upcoming inflation metrics surprise to the upside, the expected core CPI and PCE readings of around 0.2% for August suggest a steady Fed is still in play. This stance may provide some relief to equity markets facing pressure from rising rate concerns, particularly if inflation data aligns with Goldman’s forecasts.
Key Takeaways
- 01Goldman Sachs maintains a position against a September rate hike despite Kevin Warsh's hawkish comments.
- 02The firm predicts August core CPI and PCE inflation will print around 0.2%, aligning with their base case for a steady Fed.
- 03A soft inflation print could relieve some pressure from equities currently feeling the impact of rising rate concerns.
- 04Any significant upside surprise in inflation data could validate Warsh's hawkish stance and prompt a rethink of rate hike probabilities.
Full Analysis
What the desk is arguing
Goldman Sachs argues that the bar for a September interest rate hike remains high, despite Kevin Warsh's notably hawkish rhetoric at Jackson Hole. Their economist Jan Hatzius contends that if inflation data, specifically the core CPI and PCE, print at around 0.2%, it will be consistent with recent trends that do not warrant urgency for further tightening. This interpretation allows Goldman to continue forecasting a Fed hold in September, as detailed in their recent analysis.
The desk leans on the prediction that upcoming releases of core CPI and PCE reflect moderate inflation momentum rather than the pressing need for increased rate hikes implied by Warsh's comments. The firm anticipates that these readings will not meet the heightened expectations set by the market, which recently pushed rate-hike odds to about 60% following Warsh's address.
This analysis counters the more bullish market sentiment that interprets Warsh's comments as a direct signal for a rate hike, suggesting that any sell-off pressures in equities should be closely monitored based on the forthcoming inflation data.
Market Implications
Traders should keep an eye on the next core CPI and PCE releases, as these metrics will play a crucial role in shaping market expectations for Fed policy. A print above forecasts could prompt a recalibration of rate hike odds, impacting both FX and equity markets. Conversely, adherence to Goldman's forecast might lend support to current equity positions.
From the original
Goldman's read pushes back against the sharpest market reaction to Warsh's Jackson Hole remarks, arguing the bar for a September hike is higher than the initial spike in rate-hike odds implied. If Hatzius is right that core CPI and PCE will print around 0.2 percent for August, th
Related speeches
4 itemsGoldman Sachs: labour market "not that interesting" as inflation dominates Fed debate
The desk conveys that inflation concerns remain at the forefront of the Federal Reserve's policy decisions, with labour market dynamics playing a secondary role in shaping market sentiment. Per the full note from Goldman Sachs, the recent CPI print prompted a modest bond market rally as the likelihood of a Fed rate hike in September eased slightly. Notably, ongoing Treasury issuance pressures and strong corporate debt supply are contributing to a persistent rise in long-term yields—a dynamic expected to continue despite soft near-term data surprises from the employment sector.
BofA says Warsh's Jackson Hole speech raises pressure for September hike
Bank of America's analysis, per the full note [source], argues that Fed Chair Warsh's Jackson Hole speech has effectively boxed him into a September rate hike, with only a pronounced softening in upcoming data able to justify a hold. The speech also provided a concrete framework for inflation monitoring—core PCE and the share of the basket above 3%—which could reduce market volatility around individual data prints. This view contrasts with Goldman Sachs, which still sees the Fed on hold. With the August jobs report and inflation data as the pivotal catalysts, the market is now pricing a near coin-flip for September.
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